Cabot Profit Booster 107

The Stock – Morgan Stanley (MS)

Global investment bank Morgan Stanley thrilled investors last week by delivering record profit and revenue numbers, beating Wall Street’s fourth quarter 2019 revenue and earnings estimates, and meeting or exceeding all of CEO Jim Gorman’s performance targets. Six Wall Street firms promptly raised their price targets to a range of 58-70. Revenue was $10.9 billion, trouncing the expected $9.7 billion, and beating all analysts’ estimates, while adjusted earnings per share of $1.20 blew away the $0.99 consensus estimate. The quarter featured strength in bond trading, underwriting and investment management. Additionally, Gorman’s longer-term goal of achieving much bigger and more dependable profits in the wealth management business has already come to fruition.

Technical Analysis

MS has been trending higher since early October, but the stock really got going just recently; in fact, the stock is up 13% in the last eight trading days, including a 6.6% jump on triple the normal trading volume upon last week’s earnings release. Additionally, for the first time in nearly two years, MS rose above its first quarter 2018 peak at 56. The stock may need some time to consolidate that gain, but investors can start building a position here, and buy more heavily on any pullback. Stop – 51

The Covered Call Trade

Buy Morgan Stanley (MS) Stock at 56.25, Sell to Open March 57.5 Calls (exp. 3/20/2020) for $1, or a Net Price of 55.25 or less

Static Return: $100 per covered call (1.80%)

Breakeven: 55.25

Covered Call Return (if assigned): $225 per covered call (4.07%)

Potential Dividend Captured: $0.35 (1/30/2020)

Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.

However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 55.25 or less. (In this case 56.25 minus 1 = 55.25. Or another example is you could pay 56 for the stock and sell the call for 0.75, which also equals 55.25)

For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …

Open Positions